Is something wrong?
When you update to Hangouts version 11.0 on Android, you won't be able to merge your Hangouts and text (SMS) conversations.
Merged conversations used to let you see your Hangouts messages and text messages in the same conversation. We have decided to remove it, because it caused user confusion and had low usage.
For the best SMS text messaging experience, we recommend using Google's Messenger app.
When you update to Hangouts version 11.0 on Android, you'll no longer see your Hangouts and SMS text messages with the same contact merged into one conversation. Instead, all your Hangouts chat conversations and SMS text conversations will appear separately.
No! You can still see all your messages in Hangouts.
When you're looking at your list of conversations, an icon on your contact's profile photo shows if it's an SMS conversation.
When you're looking at the history of a conversation, each message's timestamp will show if it's an SMS conversation.
When you compose a new message, tap Add New conversation. Learn more about starting a Hangout.
When you compose a new message, tap Add New SMS. Learn more about sending a text.
Source - https://support.google.com/hangouts/answer/6005073?hl=en